6 ms·

Do we really think the reduction in trade costs from $10 to $0 is really driving consumer investors to dive in? Or is it the surge in stocks like tesla over the

Do we really think the reduction in trade costs from $10 to $0 is really driving consumer investors to dive in? Or is it the surge in stocks like tesla over the last year that is driving more speculation?

ceejayoz 7y ago
I don’t think it’ll dramatically change how much overall gets invested. I do think small investors will be more likely to actively manage their investments, though, which is against most of their interests.
yellow_lead 7y ago
It's more about the difficulty, but the cost is a part of it. People without a lot of money aren't going to go to the trouble of opening a brokerage to invest 200, 400, maybe $2000 dollars. Keep in mind you used to have to go to a physical brokerage or get on a call with an online firm before you could trade. When it's an app, and you can do it all from your couch, maybe that makes it worth it.
- reaperducer 7y ago
  To build on that further, if you only have $100 in your existing account to invest, you're may not think it's worth it to buy a stock if 35% of it is going to be eaten up in fees. But if you can suddenly invest 100% of that $100, then it's far more worth doing.
- kart23 7y ago
  Yes. Robinhood has made it so easy for teens and college students to quickly open an account and start trading. Literally just click buy, like amazon. Other online brokerages are more complicated and can be intimidating to new traders. A lot of them dont have much money in their accounts, so no fees is pretty valuable for them and the social aspect is big too.
jimmaswell 7y ago
I would've probably never gotten into stocks if there was a trade fee.
kick 7y ago
It seems plausible that it's mostly the former. Kind of like gambling: if you know you're going to lose $20 just for playing, you have to be significantly more confident in your ability to win than if you don't have to lose anything just for playing. The article cites some random blue-collar worker who makes a good point: trade costs mean you're paying basically 7% in fees on smaller stuff, which is what most "Mom and Pop" investors can afford. Nobody wants to do that.
dehrmann 7y ago
Somewhere I read that for airplane wifi pricing, there isn't a big usage difference between $10 and $1, but it's huge between $1 and free.
- njarboe 7y ago
  Yep. Typing in your credit card info just to have it rejected multiple times is a pain. Click onto free wifi, not so much.
609venezia 7y ago
I'm with you that surging stocks are more responsible, although the lack of trade costs probably pours oil on the slippery slope to irresponsible risk. Favorite anecdata is the froth around the reddit user WSBGod, which pushed that crazy sub to near the top of /r/all and seems to have potentially given birth to another bitcoin-esque HODL guru.
quickthrowman 7y ago
Options trading is super cheap now, you can buy vertical spreads for free[0] on Robinhood, where 10 .20 verticals would’ve cost 200 plus (20*.65 + 4.95) or 217.95 (plus whatever the spread costs, usually .02 on SPY) or almost $220 just to open the position, and the same amount to close. You’re looking at 10% transaction cost just to open. Robinhood just lets you jam your entire $200 into option premiums netting you better returns (or smaller losses). Robinhood has made speculating on cheap spreads and weekly options a lot cheaper. It doesn’t really make much of a difference to people trading ITM options or hedging, but speculation is much cheaper now. Edit: With SPCE, PLUG and perhaps TSLA, it was retail long call option buying that forced the MMs to buy the underlying to hedge, forcing the price further upwards which made more people buy calls which lead to MMs buying more shares to hedge. Eventually the buying stops, as we’ve seen with TSLA and SPCE. At one point during TSLAs parabolic rise, 1.8 TSLA calls were trading for every 1 SPY call. SPY usually has the highest option volume, since it’s the most liquid ETF. Option markets have a lot of influence over the price of the underlying. [0] Meaning your order flow is sold to market makers, and you might get a slightly worse fill
- brianbreslin 7y ago
  Fascinating. Any reputable source you recommend for someone like me who wants to understand vertical spreads better?
  - quickthrowman 7y ago
    “Option Volatility and Pricing” by Natenberg is the standard text on options. There are also multiple option strategy websites that explain the different single and multi-leg option strategies, if you just want a cursory overview. You can try your hand at paper trading, thinkorswim by TD Ameritrade has paper trading, and you just need a token deposit of a few bucks to open an account which includes paper trading.
Seanambers 7y ago
It has more to do with the low interest environment since 08/09. As long as rates stay low, all kind of asset classes will experience capital inflows and thus higher asset pricing. Having money in the bank is just stupid for average people, and they've found out about it.
vanniv 7y ago
Honestly, the fact that opening an account is easy and that there are now nice, slick, easy-to-use trading platforms has done as much as the lower fees. When I opened my first online brokerage account back in the ancient times (2005), the brokerage websites were scary, and lots of stuff still required printing out paper and sending it in. Even then, trades were still cheap (I was paying $7/trade) -- but the whole process made it feel daunting, and made clicking the 'buy' button feel scary. Nowadays, buying shares is almost as easy and fun as buying shit on amazon -- and when you couple that with the fact that "everybody knows" that the reason that rich people are rich is because stocks -- it shouldn't be too surprising that everybody is racing to get in to the game. On top of everything else, we are currently in the longest and best bull market in the history of the public stock market -- which means that we have a big crop of folks that have no personal memory of stocks losing money. I frequently talk to folks that think that 2015-2016 is what a "scary market" looks like, and also frequently talk to people that remember with fear the "2011 crash". If that's what you think a bad market is like, you're going to be ready to put your last penny in.
- brianbreslin 7y ago
  Agree with you that the emphasis on UX has driven a ton of use. I'm also afraid to think about how folks will react to the next crash.

ceejayoz 7y ago

I don’t think it’ll dramatically change how much overall gets invested. I do think small investors will be more likely to actively manage their investments, though, which is against most of their interests.

yellow_lead 7y ago

It's more about the difficulty, but the cost is a part of it. People without a lot of money aren't going to go to the trouble of opening a brokerage to invest 200, 400, maybe $2000 dollars. Keep in mind you used to have to go to a physical brokerage or get on a call with an online firm before you could trade. When it's an app, and you can do it all from your couch, maybe that makes it worth it.

reaperducer 7y ago
To build on that further, if you only have $100 in your existing account to invest, you're may not think it's worth it to buy a stock if 35% of it is going to be eaten up in fees. But if you can suddenly invest 100% of that $100, then it's far more worth doing.
kart23 7y ago
Yes. Robinhood has made it so easy for teens and college students to quickly open an account and start trading. Literally just click buy, like amazon. Other online brokerages are more complicated and can be intimidating to new traders. A lot of them dont have much money in their accounts, so no fees is pretty valuable for them and the social aspect is big too.

jimmaswell 7y ago

I would've probably never gotten into stocks if there was a trade fee.

kick 7y ago

It seems plausible that it's mostly the former. Kind of like gambling: if you know you're going to lose $20 just for playing, you have to be significantly more confident in your ability to win than if you don't have to lose anything just for playing. The article cites some random blue-collar worker who makes a good point: trade costs mean you're paying basically 7% in fees on smaller stuff, which is what most "Mom and Pop" investors can afford. Nobody wants to do that.

dehrmann 7y ago

Somewhere I read that for airplane wifi pricing, there isn't a big usage difference between $10 and $1, but it's huge between $1 and free.

njarboe 7y ago
Yep. Typing in your credit card info just to have it rejected multiple times is a pain. Click onto free wifi, not so much.

609venezia 7y ago

I'm with you that surging stocks are more responsible, although the lack of trade costs probably pours oil on the slippery slope to irresponsible risk. Favorite anecdata is the froth around the reddit user WSBGod, which pushed that crazy sub to near the top of /r/all and seems to have potentially given birth to another bitcoin-esque HODL guru.

quickthrowman 7y ago

Options trading is super cheap now, you can buy vertical spreads for free[0] on Robinhood, where 10 .20 verticals would’ve cost 200 plus (20*.65 + 4.95) or 217.95 (plus whatever the spread costs, usually .02 on SPY) or almost $220 just to open the position, and the same amount to close. You’re looking at 10% transaction cost just to open. Robinhood just lets you jam your entire $200 into option premiums netting you better returns (or smaller losses). Robinhood has made speculating on cheap spreads and weekly options a lot cheaper. It doesn’t really make much of a difference to people trading ITM options or hedging, but speculation is much cheaper now. Edit: With SPCE, PLUG and perhaps TSLA, it was retail long call option buying that forced the MMs to buy the underlying to hedge, forcing the price further upwards which made more people buy calls which lead to MMs buying more shares to hedge. Eventually the buying stops, as we’ve seen with TSLA and SPCE. At one point during TSLAs parabolic rise, 1.8 TSLA calls were trading for every 1 SPY call. SPY usually has the highest option volume, since it’s the most liquid ETF. Option markets have a lot of influence over the price of the underlying. [0] Meaning your order flow is sold to market makers, and you might get a slightly worse fill

brianbreslin 7y ago
Fascinating. Any reputable source you recommend for someone like me who wants to understand vertical spreads better?
- quickthrowman 7y ago
  “Option Volatility and Pricing” by Natenberg is the standard text on options. There are also multiple option strategy websites that explain the different single and multi-leg option strategies, if you just want a cursory overview. You can try your hand at paper trading, thinkorswim by TD Ameritrade has paper trading, and you just need a token deposit of a few bucks to open an account which includes paper trading.

Seanambers 7y ago

It has more to do with the low interest environment since 08/09. As long as rates stay low, all kind of asset classes will experience capital inflows and thus higher asset pricing. Having money in the bank is just stupid for average people, and they've found out about it.

vanniv 7y ago

Honestly, the fact that opening an account is easy and that there are now nice, slick, easy-to-use trading platforms has done as much as the lower fees. When I opened my first online brokerage account back in the ancient times (2005), the brokerage websites were scary, and lots of stuff still required printing out paper and sending it in. Even then, trades were still cheap (I was paying $7/trade) -- but the whole process made it feel daunting, and made clicking the 'buy' button feel scary. Nowadays, buying shares is almost as easy and fun as buying shit on amazon -- and when you couple that with the fact that "everybody knows" that the reason that rich people are rich is because stocks -- it shouldn't be too surprising that everybody is racing to get in to the game. On top of everything else, we are currently in the longest and best bull market in the history of the public stock market -- which means that we have a big crop of folks that have no personal memory of stocks losing money. I frequently talk to folks that think that 2015-2016 is what a "scary market" looks like, and also frequently talk to people that remember with fear the "2011 crash". If that's what you think a bad market is like, you're going to be ready to put your last penny in.

brianbreslin 7y ago
Agree with you that the emphasis on UX has driven a ton of use. I'm also afraid to think about how folks will react to the next crash.